Euro has 1-in-5 chance of lasting decade: UK think-tank

By IBT Staff Reporter On 12/31/10 AT 2:24 PM

The euro currency area has only a one-in-five chance of surviving in its current form over the next 10 years because of competitive imbalances between its members, a leading British think tank said on Friday.

The Center for Economics and Business Research said Spain and Italy would have to refinance over 400 billion euros ($530 billion) of bonds in the spring, potentially sparking a fresh crisis within the 16-nation euro area.

The euro might break up at this point, though European politicians are normally able to respond to a crisis, said CEBR Chief Executive Douglas McWilliams in a list of 10 forecasts for 2011.

Sovereign debt crises in Greece and Ireland have rocked euro nations this year, leading some commentators to speculate that Germany could eventually lose patience with bailing out its more profligate neighbors, triggering a split in the currency bloc.

Chancellor Angela Merkel has repeatedly stressed Berlin's commitment to the euro and she said so again in her New Year message to the country on Friday.

The euro is the foundation of our prosperity, she said. Germany needs Europe and our common currency. For our own well-being and in order to overcome great worldwide challenges. We Germans assume our responsibility, even when it is sometimes very hard.

McWilliams argued that the deeper imbalances between the euro zone's stronger and weaker economies, which have become increasingly apparent since the 2008 financial crisis, would undermine the project in the long term.

I suspect that what will break up the euro will be the failure of most of the countries to take the tough medicine necessary to make their economies competitive over the longer term, McWilliams said:

We give it only a one in five chance of surviving in its present form for 10 years. If the euro doesn't break up, this could be the year when it weakens substantially toward parity with the dollar, he added.

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